Voluntary liquidation is liquidation of a corporate entity at the instance of its members, it is one of the exit alternatives for the investors. It is like private liquidation proceeding where the court’s intervention is minimized.
APPLICABILITY OF LIQUIDATION
A Company who intends to liquidate itself voluntarily and has not committed any default on any debt to any person may initiate voluntary liquidation proceedings.
DIMENSIONS OF WINDING UP
The process of winding up has got multiple dimensions which have been explained step by step below:
I. Corporate Law aspect
The process for liquidation will be govern by section 59 of the insolvency and Bankruptcy Code, 2016 and Companies Act, 2013 and the initial steps for liquidation are as follows:
- Declaration of solvency
The first step will be filing of declaration of solvency by the Directors of the Company. In process of filing the declaration following steps will be followed:
- Appointment of registered valuer: The registered valuer is appointed for valuation of assets of the Company and to obtain the valuation report.
- Declaration of solvency in the form of affidavit from the Directors, confirming that the Company is solvent and has not committed any default on repayment of debts, moreover the company is not being liquidated to defraud any person
- The declaration from directors and valuation report from registered valuer will then be filed with the registrar of companies
- Identify insolvency professional as liquidator
The Board has to identify an Insolvency Professional, who is independent of the Company, to act as Liquidator to conduct the voluntary liquidation process.
- Convening ofBoard Meeting and then Shareholder’s meeting for the appointment of Insolvency Professional as the Liquidator of the Company.
- Filings with Registrar of Companies and IBBI (Insolvency and Bankruptcy Board of India)
The liquidator has to file the resolutions to Registrar of Companies and IBBI.
The voluntary liquidation proceedings commence from the date of passing of the resolution by the members subject to creditor’s approval. With the passing of Special Resolution in general meeting and appointment of Liquidator, all powers of the board of directors, key managerial personnel shall cease to have effect and shall be vested in the liquidator.
- Powers and duties of Official Liquidator(OL)
- OL will verify the claim of the creditors of the Company
- He will take into custody, evaluate or control the assets and property of the Company and will take such measures to protect and preserves the assets of the Company.
- He may carry the business of the Company for its beneficial liquidation as he considers necessary.
- He shall open separate bank account for keeping the funds
- Completion of Liquidation
The liquidator has to complete the process of liquidation within 12 months from the date of commencement of liquidation.
- National Company Law Tribunal (NCLT) Proceedings
- When the affairs of the company are completely wound up, the liquidator has to make an application to NCLT for dissolution of the company.
- The NCLT shall then pass an order that the company shall stand dissolved from the date of the order.
- The order so received is then submitted to Registrar of Companies for removing the name of the Company from its records
II. Taxation aspect
Before remitting funds in the account of the shareholders, the Company shall meet all its tax obligations.
III. FEMA aspect
This aspect is considered in case the shareholder of the Company is a foreign national/ non-resident in India. Subject to an order issued by NCLT in the case of voluntary liquidation of the company, AD bank shall allow remittance of funds to the shareholders subject to the following:
- No objection or tax clearance certificate from the Income tax department for the remittance
- Auditor certificate confirming that all liabilities in India have been fully paid up or adequately provided for
- Auditor certificate to the effect that the winding-up is in accordance with the provisions of the companies act.
- In case of winding up otherwise than by a court, an auditor certificate to the effect that there is no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.